Why Affiliate Marketing Needs to Go Programmatic

When some people hear the words "affiliate marketing," the thought stream glides to images of spam, pyramid schemes or dodgy pharmaceuticals. They also remember keyword-stuffing websites that tried to exploit search engines to get traffic for their affiliate links, but didn’t offer anything of value to their visitors.

It's an unfortunate stigma for an industry that, when practiced properly and ethically, is as valuable to its customers as it is to its advertisers and publishers.

Nowadays, there are established industry standards; ethical practices have become the norm and those who break the rules are increasingly being shut down. And it is because of these improvements that big publishers are starting to see affiliate as a valuable revenue stream.

Let's consider Gawker Media as an example. Gizmodo, one of Gawker Media's tech titles, recently published a "20 Best Gadgets of 2015" list. Under several of the rankings is a link to buy the products from Amazon, with a clear disclosure that "Gawker Media may get a commission" if you click the link. And indeed, if you were to buy a product after being inspired by this list, Gawker Media would be given a small share of the sale if it can be directly traced to that article.

This is the new era of affiliate marketing. It's more honest, transparent, and profitable. And crucially, it provides benefits all around - advertisers get sales, publishers get funding and consumers gain valuable and non-intrusive information about products.

This year, the amount of money spent on affiliate marketing around the world will hit the billions, with this expected grow further over the next few years.

But this growth is not as fast or as sustainable as it could be, and here’s why.

Affiliate is too slow

Programmatic has transformed the advertising industry, bringing on board the speed and efficiency of automated real-time bidding. Using software and centralised ad exchanges, advertisers can bid to display their ad to a user within the milliseconds that it takes to load the page. Advertisers can also focus their budgets on users who are more likely to be interested in the ad and tailor its wording and design to each individual.

While this has been a huge step forward for advertising, affiliate marketing is yet to “go programmatic.” Where programmatic brings in automated bidding, affiliate cost-per-actions (CPAs) are still negotiated by phone and email. And when a bid is successful, often an insertion order (IO) still needs to be signed and scanned for the affiliate placement to be confirmed.

This is too slow for affiliate marketing to reach its full potential and grow sustainably in the future. The longer the bidding process, the lower the level of transactions will be. The fewer the opportunities to tailor and adapt your campaign on the go, the lower the level of interest in affiliate marketing. These are serious limitations to affiliate marketing today, and something only a shift to programmatic can address.

Why affiliate has not yet gone programmatic

So, why has affiliate been so slow to adapt to something so efficient?

Affiliate marketing has a range of different variants: e.g. aggregators, coupons, cashback, comparison, and content-based sites. Each publisher category has a different approach and bringing programmatic into all of these is very difficult.
For example, let’s consider a content-based affiliate marketer that makes a website to inform its readers about a particular product and encourage them to purchase. The issue is that producing content is a time-consuming, mostly manual process. While programmatic could improve personalisation by using dynamically populated websites that adapt to each reader, if poorly implemented this could degrade the quality of the content.

Alternatively, programmatic could increase the volume of content that needs to be manually created beyond what is practical. Clearly, this is a lot more challenging than display and search, where small amounts of text and simple designs are easy to generate.

Another challenge is that some affiliate marketers are opposed to the shift towards programmatic. With the huge diversity of affiliate approaches and varying levels of difficulty with implementing programmatic solutions, moving in this direction will meet resistance from those sceptical about its benefits.

Any programmatic option would have to account for these concerns and meet the needs for affiliate marketing’s many variants.

Despite these challenges, with worldwide programmatic spend expected to hit $37 billion by 2019, affiliate going programmatic seems almost inevitable. The programmatic revolution has established a new set of standards where speed, personalisation, and accurate real-time data are obligatory across the industry. The sooner affiliate marketing is able to accept and adapt to this new reality, the better.

Affiliate programmatic in practice

First and foremost, it’s important to assess what this would look like, and also how this might work for each of the different variants of affiliate marketing.

Aggregator affiliates are the closest example we currently have of programmatic affiliate. By profiling people and automatically delivering the most relevant products or services to them, aggregators embody the principle of using automation to personalise the experience to each user. While the technology does not always find the “perfect” product for every person, it is a strong step in the right direction by putting the user’s needs first.

Email affiliate is also a pioneering area for programmatic. Email provides a platform where it is easier to create standardised formats, in contrast to other affiliate variants where there is a more complex path to purchase or where more content is required. With companies like Lolagrove and Zeta Interactive developing data management platforms to organise email affiliate campaigns, we can see huge potential for growth in this area.

But for some areas, reining in programmatic is more challenging. For cashback and voucher affiliates, the challenge is delivering personalised incentives to consumers without over-discounting and undermining profit margins. For content affiliates, the challenge is bringing programmatic principles to a space that relies on human creativity – and that is difficult to automate.

Overall, in order that for affiliate programmatic to succeed, it should have four features at its core:

1. Centralised media-buying hubs: These hubs (or exchanges) are a key prerequisite of a faster, more programmatic affiliate market. They provide a central location in which transactions can take place, connecting publishers and advertisers from around the world and allowing the use of automation in the bidding process. By taking away the paperwork and the hassle of seeking out affiliates manually, more affiliate transactions can take place with greater efficiency.

2. Effective tracking of the customer journey: This will allow us to know more reliably when a commission has been earned. Simply relying on cookies and links to track the customer journey is no longer viable when shopper journeys can be long and/or take place across multiple devices.

3. Creative dynamic optimisation: This means that the look and feel of affiliate content can be automatically customised and tailored to each consumer. By engaging with each customer as an individual, and providing content that they want to look at, companies are much more likely to get results.

4. An open marketplace of data: When the industry has poor or insufficient data, consumers get constantly interrupted by ads that are irrelevant and trust in the industry as a whole will be eroded. An open exchange of data will help ensure that across the industry, affiliate marketing only reaches audiences when it is useful, and doesn't alienate consumers from the channel.

Next steps

One fact is clear: businesses hoping to compete using the affiliate channel must ensure that they are buying media in the most efficient way possible. This means that the industry needs to shift from merely buying contextually, to buying by the specific audiences that they are targeting.

Now that the advertising industry more broadly has gone through and learnt from the experience of moving over to programmatic, we can hopefully expect a smoother ride for affiliate marketing. We can make sure that affiliate placements are well-targeted and provide value to consumers, and do our best to avoid the issue of ad fraud.

What we do know is that the trend is clearly towards programmatic. And even if it is a slow evolution, affiliate will eventually make its way there. And this is a welcome development.